Directors and officers insurance

Being the director or a high level officer of a company has an enormous amount of responsibility attached. This responsibility is more extensive than that lower level employees are exposed to and so directors and officers need their own protection. As representatives of the company they make decisions that can effect all of the livelihoods of their workers and shareholders – and, should something go wrong are accountable (and maybe sued). 

The essentials

Directors and officers can find themselves in the unenviable position of incurring personal financial liability when something goes wrong in their company. A directors’ and officers’ standard policy may provide protection against real or alleged breaches of the Trade Practices Act or of Fair Trading legislation, defamation, competitor complaints, shareholder dissatisfaction, contract infringements, commissions of enquiry entered into by the Australian Competition and Consumer Board or the Australian Tax Office.

However, some policies of may only cover “claims made and known circumstances”. If the policy holder informs the insurer of all possible claims that could be (at the time of taking out the policy) made against the individual being insured, the insurer will not then be able to dispute an indemnity claims. This is the case even if the incident occurred outside the current insurable period and policy.

Any person who occupies a position within a company or business where they have to assume accountability for the running of the company should seriously consider taking out directors and officers insurance. Those in high level positions of very big companies should consider it an essential requirement of holding office – without it their home and assets may be at risk.

Purchasing responsibility

Many public companies, non-profit organisations and proprietary companies purchase director’s and officers insurance for their senior office bearers. When this is the case it is possible to hold an executive position without personally purchasing coverage. Alternatively, you can purchase you own additional coverage to ensure absolute protection in case the company decides not to support those being claimed against. Definitely check with the company however, about the level of cover so you can determine for yourself whether additional protection is required.

It is common for high level employees to suffer personal financial liability in the face of company wrong-doing.

What directors and officer insurance covers

A policy of this type limits personal liability, covers legal protection defending unfounded claims, helps identify who is at fault, prevents you being used as a scapegoat and has the added benefit of providing peace of mind.

On the other side of the ledger these policies are expensive, may not protect you against all claims and companies who do not already have this coverage in place for their senior office bearers may not be supportive of you having an individual policy.